I felt much better about this sitting than the last one. I thought the questions were in line with my expectations. I predicted the need to mention the lack of a projection scale on the mortality assumption back in February. I also figured we would see questions on credibility, embedded options, and some fluffy public sector stuff. There was more than usual amount of ISA 19 questions, but I read the “Similarities and Difference” paper (DA-168-19) the day before the exam so it wasn’t too bad.

I agree that the forward and backward duration thing was annoying, but I felt good that I spotted the need to do that. It was otherwise a pretty routine accounting question.

For the Merger question, I recommend that they only merge the plans to avoid the additional funding. If they were to merge and do the buy-out (for Plan A retirees only), it would reduce the funded ratio to below the 80% threshold.

It seemed like a fair exam to me. For the settlement question, I assumed that the 9/30 buy-out retiree liability was calculated at 4%, so I adjusted that by dividing by 1.1. Then I backed it out of the total rolled forward amount, multiplied by 1.15 and added the 9/30 (unadjusted) retiree buy-out liability back in. I know what I got as an answer for the settlement amount because the calculations are still in my calculator's memory but not sure if it's OK to discuss #s until the exam is released.

What did people recommend for the question where you had to choose/justify between 3 alternatives of merging Plan A/Plan B and doing a retiree buyout? I think the options were basically do nothing, merge the plans w/o buyout, and merge the plans w/ buyout.

I recommended option iii (merge w/ buyout). My justification was basically that there would be no minimum funding requirement since combined plan would be 80% funded, reduced admin expenses (only one val required, one set of gov't forms, etc.), and the ongoing reduction in the insurance premiums. Hoping that as long as you chose a recommendation and stuck with/defended it you will get full points.

I felt really rushed but I think I managed to get the key points down for most questions. Tough to know where I stand though because this was my first fully written exam.

Agreed on the settlement, I rolled back the buy-out group liability before pulling it out and then brought the remainder forward and added back the amount given

The merged plan would have been <80% funded after the buy-out (since the Plan A retiree liability is out of the PBO and assets) for not a lot of savings in premiums so I said only merge. Not 100% there but I thought the buy-in question kind of implied this was the result we'd get it

I also did not change my recommendation with the Buy-in, because I thought that they would still have to pay the annual premium with a Buy-In.

I wasn't 100% sure where to go with this, but i did change my recommendation because the value of the buy-in contract would be held as an asset, so unlike with the buyout where the funded percentage fell way below 80%, the plan would remain over 80% in the buy-in scenario.....i think

Agree with everyone's comments on the settlement question, i didn't like that it wasn't explicitly clear what discount rate was used to value the buyout liabilities we were provided - i assumed they were at the new 4% rate, but i wish they'd have told us.

I wasn't 100% sure where to go with this, but i did change my recommendation because the value of the buy-in contract would be held as an asset, so unlike with the buyout where the funded percentage fell way below 80%, the plan would remain over 80% in the buy-in scenario.....i think

Agree with everyone's comments on the settlement question, i didn't like that it wasn't explicitly clear what discount rate was used to value the buyout liabilities we were provided - i assumed they were at the new 4% rate, but i wish they'd have told us.

I agree that the plan doesnít drop below 80% with the buy-in, but the stated goal of the buyout was to reduce the $500 premium. I assumed that the premium would not go away with the buy-in, although it wasnít stated one way or the other. Additionally, a buy-in is more expense than the plan keeping the liability (if all assumptions are met). Obviously, the benefit of the buy-in is the reduction of risk and lower volatility, but those didn't seem like the goals from my understanding.

I also assumed that 4% was the new discount rate. But now that you mention it, I donít that it was clearly stated. If that wasn't the case, I would imagine they would give credit for both approaches.

For the Merger question, I recommend that they only merge the plans to avoid the additional funding. If they were to merge and do the buy-out (for Plan A retirees only), it would reduce the funded ratio to below the 80% threshold.

Quote:

Originally Posted by johnodin87

The merged plan would have been <80% funded after the buy-out (since the Plan A retiree liability is out of the PBO and assets) for not a lot of savings in premiums so I said only merge. Not 100% there but I thought the buy-in question kind of implied this was the result we'd get it

I definitely missed the detail that the buy-out was only for Plan A retirees. My analysis was based on a buy-out for all retirees, but I think my argument is still sound. I also recommended only merge.

I definitely missed the detail that the buy-out was only for Plan A retirees. My analysis was based on a buy-out for all retirees, but I think my argument is still sound. I also recommended only merge.

I wouldn't worry much about that. It's the same result either way. I'm sure we all missed something. Like for question 7(b), I failed to mention ASOP 41 that provides guidance for this situation. Also for 13(b), I only wrote the words "hurdle mortality and hurdle discount rate" but didn't bother to explain them.

There too much information, but even looking at the exam now, I think it was a fair test. I say that until I see the solutions.